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  <h1> Trading Basics</h1>
  <h2>Basic Steps in How Stock Trading Works</h2>
  <p id="by">By <a href="http://stocks.about.com/bio/Ken-Little-12917.htm" rel="author">Ken Little</a>, About.com Guide</p>
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Trading stocks. You hear that phrase all the time, although it really is  wrong – you don&rsquo;t trade stocks like baseball cards (I&rsquo;ll trade you 100  IBMs for 100 Intels).
<h3> Trade = Buy or Sell </h3>
To &ldquo;trade&rdquo; means to  buy and sell in the jargon of the financial markets. How a system that  can accommodate one billion shares trading in a single day works is a  mystery to most people. No doubt, our financial markets are marvels of  technological efficiency.
<p> Yet, they still must handle your order for  100 shares of Acme Kumquats with the same care and documentation as my  order of 100,000 shares of MegaCorp. </p>
<p> You don&rsquo;t need to know all  of the technical details of how you buy and sell stocks, however it is  important to have a basic understanding of how the markets work. If you  want to dig deeper, there are links to articles explaining the technical  side of the markets. </p>
<h3> Two Basic Methods </h3>
There are two basic ways exchanges execute a trade:
<p> </p>
<ul>
  <li>On the exchange floor </li>
  <li>Electronically </li>
</ul>
<p> There is a strong push to move more trading to the networks and off the  trading floors, however this push is meeting with some resistance. Most  markets, most notably the <a href="http://stocks.about.com/od/glossary/g/%20NASDAQ.htm"> NASDAQ</a>,  trade stocks electronically. The futures&rsquo; markets trade in person on  the floor of several exchanges, but that&rsquo;s a different topic. </p>
<p> </p>
<h3>Exchange floor</h3>
<p> Trading on the floor of the New York Stock Exchange (the <a href="http://stocks.about.com/od/glossary/g/%20NYSE.htm"> NYSE</a>)  is the image most people have thanks to television and the movies of  how the market works. When the market is open, you see hundreds of  people rushing about shouting and gesturing to one another, talking on  phones, watching monitors, and entering data into terminals. It could  not look any more chaotic. </p>
<p> Yet, at the end of the day, the  markets workout all the trades and get ready for the next day. Here is a  step-by-step walk through the execution of a simple trade on the NYSE. </p>
<p> </p>
<ol>
  <li> You tell your broker to buy 100 shares of Acme Kumquats at market. </li>
  <li> Your broker&rsquo;s order department sends the order to their floor clerk on the exchange. </li>
  <li> The floor clerk alerts one of the firm&rsquo;s floor traders who finds  another floor trader willing to sell 100 shares of Acme Kumquats. This  is easier than is sounds, because the floor trader knows which floor  traders make markets in particular stocks. </li>
  <li> The two agree on a  price and complete the deal. The notification process goes back up the  line and your broker calls you back with the final price. The process  may take a few minutes or longer depending on the stock and the market. A  few days later, you will receive the confirmation notice in the mail. </li>
</ol>
<p> Of course, this example was a simple trade, complex trades and large blocks of stocks involve considerable more detail. </p>
<p> </p>
<h3>Electronically </h3>
In this fast moving world, some are wondering how long a human-based  system like the NYSE can continue to provide the level of service  necessary. The NYSE handles a small percentage of its volume  electronically, while the rival NASDAQ is completely electronic.
<p> The  electronic markets use vast computer networks to match buyers and  sellers, rather than human brokers. While this system lacks the romantic  and exciting images of the NYSE floor, it is efficient and fast. Many  large institutional traders, such as pension funds, mutual funds, and so  forth, prefer this method of trading. </p>
<p> For the individual  investor, you frequently can get almost instant confirmations on your  trades, if that is important to you. It also facilitates further control  of online investing by putting you one step closer to the market. </p>
<p> You still need a broker to handle your trades – individuals don&rsquo;t have  access to the electronic markets. Your broker accesses the exchange  network and the system finds a buyer or seller depending on your order. </p>
<p> </p>
<h3>Conclusion</h3>
<p> What does this all mean to you? If the system works, and it does most  of the time, all of this will be hidden from you, however if something  goes wrong it&rsquo;s important to have an idea of what&rsquo;s going on behind the  scenes. </p>
<h3>Other Articles in This Series</h3>
<p><a href="http://stocks.about.com/od/tradingbasics/a/Basictrading.htm">Trading Basics</a></p>
<p><a href="http://stocks.about.com/od/tradingbasics/a/032909prices.htm">How Stock Prices Are Set</a></p>
<p><a href="http://stocks.about.com/od/tradingbasics/a/Buystck010805.htm">Buying High, Selling Low</a></p>
<p><a href="http://stocks.about.com/od/tradingbasics/a/Stockquo011105.htm">Understanding Stock Quotes</a></p>
<p><a href="http://stocks.about.com/od/tradingbasics/a/bidask101704.htm">Understanding Bid &amp; Ask Prices</a></p>
<p><a href="http://stocks.about.com/od/tradingbasics/a/markords.htm">Understanding Stock Orders</a></p>
<p><a href="http://stocks.about.com/od/tradingbasics/a/tailingstop.htm">Using Trailing Stops to Protect Stock Profits</a></p>
<p><a href="http://stocks.about.com/od/tradingbasics/a/stoploss.htm">Understanding Stop Loss Orders</a></p>
<p><a href="http://stocks.about.com/od/tradingbasics/a/NYSE011705.htm">Market Specialists Make NYSE Work</a></p>
<p><a href="http://stocks.about.com/od/tradingbasics/a/Marketmak011205.htm">Market Makers Keep Nasdaq Humming</a></p>
<p><a href="http://stocks.about.com/od/tradingbasics/a/Scam052205.htm">Don't be a Victim of Trading Scams</a></p>
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